The ICD-10 Transition: Updating Payor Contracts

One often overlooked but potentially critical step in the preparation for the now delayed April 2015 transition from ICD-9 to ICD-10 is updating agreements between providers and payors.  While the change is ultimately expected to be valuable due to the increased specificity and granularity of diagnosis coding, the potential for unintended financial consequences must not be understated.  Most providers are well under way with their operational transition plans, but many have not considered amending their payor agreements to mitigate the potential impact of problems that arise.

Specific risks to address include:

  • Loss of revenue due to coding changes.
  • Delays in claim submission or adjudication due to operational issues.
  • Lack of a defined contingency plan.
  • Operational issues, such as claims being incorrectly denied, that require resolutions.

To mitigate these risks, providers should consider the following when negotiating amendments to their payor agreements:

  • Revenue Neutrality – How will providers confirm revenue neutrality?
    • An approach that consists of both prospective and retroactive validation is warranted.
    • Compare a representative claim sample using both ICD-9 and ICD-10 diagnosis coding.  If the sample indicates a financial variance, the applicable inpatient and outpatient prospective payment base rates, per diems, and other diagnosis-dependent payment methodologies should be adjusted before the ICD-10 transition occurs.
    • A retrospective review should be conducted to confirm that revenue neutrality occurred.  If revenue changed due to coding methodologies alone a methodology will be needed to make each party whole.
  • Testing – What is the schedule for testing?  Which criteria will be used to determine its success?
    • Although testing should already be in progress, providers should determine the key milestones and factors that will be used to indicate that they are ready to “go live” or that the contingency plan will need to be initiated.
  • Operations – What type of protection is needed against problems with claim submission?  How will the payor compensate the providers for delays in claim payments?  Will the payor assist the provider with improving coding?
    • One consideration for protection against claim submission is the allowance for an extension of timely filing deadlines during the transition period.
    • If the payor is unable to adjudicate claims timely, there should be provisions for interim payments and subsequent reconciliation.
    • Rather than automatically denying claims that are coded incorrectly, providers should require a transitional period during which they can work with insurers to improve coding skills and capabilities.  This should include a long-term process for monitoring performance and improving the quality of coding.
  • Contingency Planning – How should providers and payors plan for the possibility that claim payment operations could fail due to the change in coding?
    • As with other transition considerations, coding issues should also be addressed in advance rather than waiting for a potential crisis.  Providers should consider requiring interim payments subject to retroactive reconciliation if operations appear to be impacted or revenue neutrality is in jeopardy.

Since provider reimbursement methodologies are highly dependent upon proper diagnosis coding, there is a very real possibility that the change from ICD-9 to ICD-10 could adversely impact revenue.  Certainly, providers hope to avoid this negative prospect through careful advance transition planning, including ensuring that potential impacts can be mitigated.  With only 12 months to go before the implementation date of ICD-10, it is critical that providers review their payor contracts and address possible transition-related issues with their payors.

This post was initially featured, January 9, 2014, on the hfm Healthcare Finance Blog.

This entry was posted in Financial Performance, Legislative & Regulatory Issues, Strategic Planning and tagged , , , by Charlie Brown. Bookmark the permalink.

About Charlie Brown

Charlie works in ECG’s Managed Care practice, where he focuses on strategic health plan contracting, negotiation, and revenue recovery. With more than 18 years of healthcare management and consulting experience, he has been successful in improving the bottom line of clients’ financial and operational performance. He has assisted clients in complying with the intricacies of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and Sarbanes-Oxley §404 requirements. As a Director at a national consulting firm, he focused on managed care contracting, operations, and revenue recovery. His expertise was developed while he was Director of Managed Care/Vice President of Practice Operations at Founders Health Care (Allegheny Integrated Health Group) and an Operations Manager/Medical Center Administrator at FHP Inc. Charlie holds a master of business administration degree from The University of Utah and a bachelor of arts degree in biology from the University of Colorado.

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